- India is the second largest cement producer globally and is expected to reach 550 million tons of annual production capacity by 2020, dominated by private players. Cement demand is recovering faster than expected.
- ACC is uniquely positioned to benefit from India's cement market growth, with over 10% market share. However, high operating costs and vintage plants may hamper its growth.
- This project evaluates ACC using a discounted cash flow valuation and determines the stock is currently overvalued based on fundamental analysis. A conservative intrinsic valuation approach is used.
There are specific steps to take when preparing a supportable business valuation.
If you need a business valuation and want to make sure that the valuation expert covers all of the bases, you should look at our slides to understand the basics of the valuation process.
This presentation is an overview of Working Capital Management.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
There are specific steps to take when preparing a supportable business valuation.
If you need a business valuation and want to make sure that the valuation expert covers all of the bases, you should look at our slides to understand the basics of the valuation process.
This presentation is an overview of Working Capital Management.
Dr. Soheli Ghose ( Ph.D (University of Calcutta), M.Phil, M.Com, M.B.A., NET (JRF), B. Ed).
Assistant Professor, Department of Commerce,St. Xavier's College, Kolkata.
Guest Faculty, M.B.A. Finance, University of Calcutta, Kolkata
Corporate Valuations “Techniques & Application”: A compilation of research oriented valuation articles.
Contents: Business valuation, Relative valuation, Sum of the parts valuation and value creation, ESOP valuation, Discounted Cash Flow Valuation, Enterprise Valuation etc.
Sample finance assignment, Expertsmind.com prepares finance assignments, finance homework and finance projects for university students for each grade levels.
Cost of Capital- features of capital-meaning of cost of capital-factors affecting cost of capital-Computation of cost of capital-cost of equity capital-cost of preference capital-cost of debenture-weighted average cost of capital
Capital structure- Factors affecting capital structure- Problems on EPS- Capital structure theories
Mr. Chander Sawhney, Partner & Head – Valuation & Deals, Corporate Professionals shared his thoughts as a guest Speaker on Relative Valuation - Techniques & Application at a Business Valuation Masterclass organised by VC Circle on 31st August, 2016.
Relative Valuation in which value of an asset or liability is done by comparing it to its Peers is pervasive and preferred for ascertaining Fair Value at a point of time as it reflects the market positioning of the Industry and Peers at that time. While Discounted Cash Flow (DCF) method is applied for arriving at Fundamental Valuation, most M&A transaction are based on Relative Valuation multiples (mostly Earnings based). The valuation ratio typically expresses the valuation as a function of a measure of Key Financial Metrics like PE, EV/EBITDA, EV/Sales or Book Value Multiple.
But before using a multiple, one should know the fundamentals determining the multiple and how changes impact it. Sanity check through use of fundamental valuation method like DCF is strongly recommended.
About Corporate Professionals Valuation Practice
Corporate Professionals Capital Pvt. Ltd. is a SEBI Registered (Cat-1) Merchant Banker and has a successful track record of providing a broad range of M&A and Transaction Advisory Services. Our Dedicated Team has more than 10 years of rich Valuation experience and we have executed more than 500 Corporate Valuations for clients of International Repute across different Context, Industries and Boundaries.
To know more about Our Valuation offerings and how we can help you, please visit us at www.corporatevaluations.in or download our Valuation profile @ http://www.corporatevaluations.in/VALUATION_PROFILE.pdf
Sample finance assignment, Expertsmind.com prepares finance assignments, finance homework and finance projects for university students for each grade levels.
Cost of Capital- features of capital-meaning of cost of capital-factors affecting cost of capital-Computation of cost of capital-cost of equity capital-cost of preference capital-cost of debenture-weighted average cost of capital
Capital structure- Factors affecting capital structure- Problems on EPS- Capital structure theories
Mr. Chander Sawhney, Partner & Head – Valuation & Deals, Corporate Professionals shared his thoughts as a guest Speaker on Relative Valuation - Techniques & Application at a Business Valuation Masterclass organised by VC Circle on 31st August, 2016.
Relative Valuation in which value of an asset or liability is done by comparing it to its Peers is pervasive and preferred for ascertaining Fair Value at a point of time as it reflects the market positioning of the Industry and Peers at that time. While Discounted Cash Flow (DCF) method is applied for arriving at Fundamental Valuation, most M&A transaction are based on Relative Valuation multiples (mostly Earnings based). The valuation ratio typically expresses the valuation as a function of a measure of Key Financial Metrics like PE, EV/EBITDA, EV/Sales or Book Value Multiple.
But before using a multiple, one should know the fundamentals determining the multiple and how changes impact it. Sanity check through use of fundamental valuation method like DCF is strongly recommended.
About Corporate Professionals Valuation Practice
Corporate Professionals Capital Pvt. Ltd. is a SEBI Registered (Cat-1) Merchant Banker and has a successful track record of providing a broad range of M&A and Transaction Advisory Services. Our Dedicated Team has more than 10 years of rich Valuation experience and we have executed more than 500 Corporate Valuations for clients of International Repute across different Context, Industries and Boundaries.
To know more about Our Valuation offerings and how we can help you, please visit us at www.corporatevaluations.in or download our Valuation profile @ http://www.corporatevaluations.in/VALUATION_PROFILE.pdf
noorulhadi Lecturer at Govt College of Management Sciences, noorulhadi99@yahoo.com
i have prepared these slides and still using in mylectures, Reference: Portfolio management by S kevin and onlin
The Validity of Company Valuation Using Dis.docxchristalgrieg
The Validity of Company Valuation
Using Discounted Cash Flow Methods
Florian Steiger
1
Seminar Paper
Fall 2008
Abstract
This paper closely examines theoretical and practical aspects of the widely used discounted
cash flows (DCF) valuation method. It assesses its potentials as well as several weaknesses. A
special emphasize is being put on the valuation of companies using the DCF method. The
paper finds that the discounted cash flow method is a powerful tool to analyze even complex
situations. However, the DCF method is subject to massive assumption bias and even slight
changes in the underlying assumptions of an analysis can drastically alter the valuation
results. A practical example of these implications is given using a scenario analysis.
____________
1
Author: Florian Steiger, European Business School, e-mail: [email protected]
Table of Contents
List of abbreviations ........................................................................................................... i
List of figures and tables ................................................................................................... ii
1 Introduction .................................................................................................................. 1
1.1 Problem Definition and Objective ...................................................................... 1
1.2 Course of the Investigation ................................................................................. 2
2 Company valuation ....................................................................................................... 2
2.1 General Goal and Use of Company Valuation ................................................... 2
2.2 Other Valuation Methods ................................................................................... 3
3 The Discounted Cash Flow Valuation Method ............................................................ 4
3.1 Approach of the Discounted Cash Flow Valuation ............................................ 4
3.2 Calculation of the Free Cash Flow ..................................................................... 5
3.2.1 Cash Flow to Firm and Cash Flow to Equity.................................................. 5
3.2.2 Building Future Scenarios .............................................................................. 6
3.3 The Weighted Average Cost of Capital ............................................................. 6
3.3.1 Cost of Equity ................................................................................................. 7
3.3.2 Cost of Debt .................................................................................................... 8
3.3.3 Summary ......................................................................................................... 9
3.4 Calculation of the Terminal Value ................................................... ...
Assignment
Marginal Revenue Product
Marginal revenue product is defined as the change in total revenue that results from the employment of an additional unit of a resource. A producer wishes to determine how the addition of pounds of plastic will affect its MRP and profits. See the table below, and answer each of the questions.
Pounds of plastic (quantity of resource)
Number of assemblies (total product)
Price of assemblies ($)
0
0
-
1
15
13
2
30
11
3
40
9
4
55
7
5
58
5
a. The marginal product of the 3rd pound of plastic is ________.
b. The marginal revenue product of the 3rd pound of plastic is ______.
c. The price of plastic is $135 per pound. To maximize profit, the producer should produce
__________________.
d. The price of plastic is $135 per pound. To maximize profit, the producer should buy and use:
________________.
Grading Criteria Assignments
Maximum Points
Meets or exceeds established assignment criteria
40
Demonstrates an understanding of lesson concepts
20
Clearly presents well-reasoned ideas and concepts
30
Uses proper mechanics, punctuation, sentence structure, and spelling
10
Total
100
Case Study
C&MDS, Inc.
Some time ago, at the beginning of 2010, an entrepreneur named Richard Alestar started a small business as a sole proprietor in Oregon - a business that manufactured sensors for cameras that could be used in motion detection systems. The business was very successful and he decided to incorporate in the latter part of 2011 under the name C&MDS, Incorporated. He wanted to name it Camera and Motion Detection Systems, but his marketing manager convinced him it was too difficult to remember. Alestar’s long-term plan was to obtain public funding to support growth anticipated in about 4-6 years. In the meantime, he hired electrical engineers and a solid management team capable of building an organization that would enable the company to eventually go public. He thought his proprietary sensors and equipment could not be duplicated for a number of years. There was only one competitor in the market niche where he competed that had a significant market share, but they were a follower, not a leader. Besides, he planned to grow the market himself, based on the increased focus and attention in the public arena on crime prevention, detection and surveillance using cameras with his sensors. He also was developing a host of other potential applications.
Alestar had developed a good relationship with his investment banker Sophia Pound, and had just begun discussions with respect to obtaining additional capital required to position the company to go public. These discussions also involved the chief financial officer (CFO), Mitch O. Dinero, who had brought up the issue of the appropriate capital structure (target capital structure) that C&MDS should consider. They both thought the current mix in the capital structure was close to optimal, and that only minor changes would be necessary. However, they would defer to the investment banke ...
AgendaComprehending risk when modeling investment (project) de.docxgalerussel59292
Agenda
Comprehending risk when modeling investment (project) decisions
Standalone Risk
Market Risk
1
1
Project Risk
Standalone Risk: Risk based on uncertainty of a projects cash flows
Sensitivity
Scenarios
Breakeven
Simulations
Market Risk: Risk of the project as seen by a well diversified investor
Beta
2
Sensitivity, Scenario, and Break-Even
Each allows us to look behind the NPV number to see how stable our estimates are.
Breakeven: sales required to breakeven
Accounting break-even: sales volume at which net income = 0
Cash break-even: sales volume at which operating cash flow = 0
Financial break-even: sales volume at which net present value = 0
Sensitivity: how sensitive a particular NPV calculation is to changes in an input variable holding all other assumptions are held constant
Scenario: examine impact on NPV given a confluence of factors
When working with spreadsheets, try to build your model so that you can adjust variables in a single cell and have the NPV calculations update accordingly.
3
3
Monte Carlo Simulation
A more sophisticated variation of the scenario analysis is Monte Carlo simulation.
In a Monte Carlo simulation, analysts specify a range or a distribution of potential outcomes for each of the model’s assumptions.
Pick a probability distribution for each input variable (units, price, variable costs, etc).
The computer program will pick a random value from each input variable, calculate the NPV and store the result. This is a trial.
Repeat the process many times, saving the input variables and the output (NPV).
End result: Probability distribution of NPV based on sample of simulated values.
4
Example
5
6
When a firm with both debt and equity invests in an asset similar to its existing assets (business), the WACC is the appropriate discount rate to use in NPV calculations.
In conglomerates, the WACC reflects the return that the firm must earn on average across all its assets to satisfy investors, but using the WACC to discount cash flows of a particular investment leads to mistakes.
Any project’s cost of capital depends on the use to which the capital is being put—not the source.
Therefore, it depends on the risk of the project and not the risk of the company.
When a firm invests in an asset that is different from its existing assets, it should look for pure-play firms to find the right discount rate.
6
Finding the Right Discount Rate
6
You are a financial analyst at General Electric and are preparing a cost of equity estimate for a project analysis using NPV:
CAPM = Risk Free Rate + Beta * Market Risk Premium
9.5% = 3.0% + 1.1 * 5.9%
Lines of Business
Financial Services
Power Generation
Aviation
Transportation
Health Care
Consumer Goods
When evaluating a new power generation investment for GE, which cost of capital should be used?
Capital Budgeting & Project Risk
7
Beta
1.8
0.6
1.2
1.3
0.8
1.1
7
17
Capital Budgeti.
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Business Valuation Principles for EntrepreneursBen Wann
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Putting the SPARK into Virtual Training.pptxCynthia Clay
This 60-minute webinar, sponsored by Adobe, was delivered for the Training Mag Network. It explored the five elements of SPARK: Storytelling, Purpose, Action, Relationships, and Kudos. Knowing how to tell a well-structured story is key to building long-term memory. Stating a clear purpose that doesn't take away from the discovery learning process is critical. Ensuring that people move from theory to practical application is imperative. Creating strong social learning is the key to commitment and engagement. Validating and affirming participants' comments is the way to create a positive learning environment.
The world of search engine optimization (SEO) is buzzing with discussions after Google confirmed that around 2,500 leaked internal documents related to its Search feature are indeed authentic. The revelation has sparked significant concerns within the SEO community. The leaked documents were initially reported by SEO experts Rand Fishkin and Mike King, igniting widespread analysis and discourse. For More Info:- https://news.arihantwebtech.com/search-disrupted-googles-leaked-documents-rock-the-seo-world/
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As an Army veteran dedicated to lifelong learning, I bring a disciplined, strategic mindset to my pursuits. I am constantly expanding my knowledge to innovate and lead effectively. My journey is driven by a commitment to excellence, and to make a meaningful impact in the world.
Attending a job Interview for B1 and B2 Englsih learnersErika906060
It is a sample of an interview for a business english class for pre-intermediate and intermediate english students with emphasis on the speking ability.
As a business owner in Delaware, staying on top of your tax obligations is paramount, especially with the annual deadline for Delaware Franchise Tax looming on March 1. One such obligation is the annual Delaware Franchise Tax, which serves as a crucial requirement for maintaining your company’s legal standing within the state. While the prospect of handling tax matters may seem daunting, rest assured that the process can be straightforward with the right guidance. In this comprehensive guide, we’ll walk you through the steps of filing your Delaware Franchise Tax and provide insights to help you navigate the process effectively.
Improving profitability for small businessBen Wann
In this comprehensive presentation, we will explore strategies and practical tips for enhancing profitability in small businesses. Tailored to meet the unique challenges faced by small enterprises, this session covers various aspects that directly impact the bottom line. Attendees will learn how to optimize operational efficiency, manage expenses, and increase revenue through innovative marketing and customer engagement techniques.
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RMD24 | Retail media: hoe zet je dit in als je geen AH of Unilever bent? Heid...BBPMedia1
Grote partijen zijn al een tijdje onderweg met retail media. Ondertussen worden in dit domein ook de kansen zichtbaar voor andere spelers in de markt. Maar met die kansen ontstaan ook vragen: Zelf retail media worden of erop adverteren? In welke fase van de funnel past het en hoe integreer je het in een mediaplan? Wat is nu precies het verschil met marketplaces en Programmatic ads? In dit half uur beslechten we de dilemma's en krijg je antwoorden op wanneer het voor jou tijd is om de volgende stap te zetten.
"𝑩𝑬𝑮𝑼𝑵 𝑾𝑰𝑻𝑯 𝑻𝑱 𝑰𝑺 𝑯𝑨𝑳𝑭 𝑫𝑶𝑵𝑬"
𝐓𝐉 𝐂𝐨𝐦𝐬 (𝐓𝐉 𝐂𝐨𝐦𝐦𝐮𝐧𝐢𝐜𝐚𝐭𝐢𝐨𝐧𝐬) is a professional event agency that includes experts in the event-organizing market in Vietnam, Korea, and ASEAN countries. We provide unlimited types of events from Music concerts, Fan meetings, and Culture festivals to Corporate events, Internal company events, Golf tournaments, MICE events, and Exhibitions.
𝐓𝐉 𝐂𝐨𝐦𝐬 provides unlimited package services including such as Event organizing, Event planning, Event production, Manpower, PR marketing, Design 2D/3D, VIP protocols, Interpreter agency, etc.
Sports events - Golf competitions/billiards competitions/company sports events: dynamic and challenging
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Enterprise Excellence is Inclusive Excellence.pdfKaiNexus
Enterprise excellence and inclusive excellence are closely linked, and real-world challenges have shown that both are essential to the success of any organization. To achieve enterprise excellence, organizations must focus on improving their operations and processes while creating an inclusive environment that engages everyone. In this interactive session, the facilitator will highlight commonly established business practices and how they limit our ability to engage everyone every day. More importantly, though, participants will likely gain increased awareness of what we can do differently to maximize enterprise excellence through deliberate inclusion.
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Dr. William Harvey is a seasoned Operations Leader with extensive experience in chemical processing, manufacturing, and operations management. At Michelman, he currently oversees multiple sites, leading teams in strategic planning and coaching/practicing continuous improvement. William is set to start his eighth year of teaching at the University of Cincinnati where he teaches marketing, finance, and management. William holds various certifications in change management, quality, leadership, operational excellence, team building, and DiSC, among others.
1. EXECUTIVE SUMMARY
India is the second largest cement producer with nearly 300 million tons of cement
production capacity and hence the second largest market in the world. By 2020, cement
production expected to reach 550 million tons production capacity. It is characterized by the
domination of private players having 98% of capacity and rest lies with public sector. Further
large plants holds higher share and major production is from south and west region. Demand
recovery has being faster and higher than expected. This coupled with slow capacity addition
and higher capital expenditure and operating cost would support cement prices and
profitability going forward. The increase in GDP growth will be major factor for growth and
expenditure from government infrastructure projects will add to the growth. ACC is uniquely
position to benefit from the growth as it has over 10% market share as well as adding
capacity to cater the future demand. However, certain factors which could deteriorate its
growth could be the high operating cost, vintage plants, and power and freight charges. They
are able to reduce power cost by efficiency measure and new power plant.
This project will help the investors to make a
buying decision based on the fundamental analysis of ACC Ltd. The method used is widely
accepted DCF valuation technique and market multiple method for terminal value
calculation. At present the share is overvalued due to more optimism in the market, and on
the intrinsic value determination it is advisable to not invest in the stock. The approach used
is highly conservative and traditional tools are used.
2. 1 | P a g e
TABLE OF CONTENTS
1. Introduction ........................................................................................................................2
Problem Statement.............................................................................................................................3
Purpose of the study...........................................................................................................................4
Research Methodology.......................................................................................................................5
Scope of the study ..............................................................................................................................7
Limitations of the study ......................................................................................................................8
2 Introduction to Indian Cement Sector ................................................................................9
Demand drivers.................................................................................................................................11
Demand Inhibitors ............................................................................................................................14
New Trend in the Industry ................................................................................................................17
3 Introduction to ACC LTD ................................................................................................18
4 Investment Arguement .....................................................................................................20
5 Assumptions .....................................................................................................................21
6 Projection..........................................................................................................................22
7 Analysis & Findings .........................................................................................................25
Sensitivity Analysis............................................................................................................................26
8 Recommendation..............................................................................................................27
9 Biblography ......................................................................................................................28
3. 2 | P a g e
1. INTRODUCTION
The project undertaken is on “Equity Valuation of ACC Ltd. In
financial markets, stock valuation is the method of calculating theoretical values
of companies and their stocks. The main use of these methods is to predict
future market prices, or more generally, potential market prices, and thus to
profit from price movement – stocks that are judged undervalued (with respect
to their theoretical value) are bought, while stocks that are judged overvalued
are sold, in the expectation that undervalued stocks will, on the whole, rise in
value, while overvalued stocks will, on the whole, fall.
In the view of fundamental analysis, stock valuation based on
fundamentals aims to give an estimate of the intrinsic value of a stock, based on
predictions of the future cash flows and profitability of the business.
Fundamental analysis may be replaced or augmented by market criteria – what
the market will pay for the stock, without any necessary notion of intrinsic
value. These can be combined as "predictions of future cash flows/profits",
together with "what will the market pay for these profits?" Fundamental
Analysis enables to read the pulse of the company. One can understand the
financial dynamics within the company and determine whether it is in a good
state or are there some problems.
Fundamental Analysis also helps to identify potential companies before
the general market. If some company that is in a market or sector that is poised
to grow for the next few years, then it would present a good investing
opportunity if the company is still priced way below the potential value.
4. 3 | P a g e
Problem Statement
The key problems faced by retail investors are:
Difficulty in getting timely, accurate, and honest opinion about various
stock and often fall prey to ill advising
Most of them are financially illiterate and thus unable to make sound
decision regarding investment in stocks
Lot of manipulation and malpractices in stock prices hurt the investor
having passive investing approach
5. 4 | P a g e
Purpose of the study
The objectives of this project were mainly to come up with fundamental
valuation of ACC stock and generate recommendation on whether to
purchase it or not.
6. 5 | P a g e
Research Methodology
This project requires a detailed understanding of the concept financial analysis and valuation.
The methodology used in this project is described as below
Standardization of financial results of company from the annual report of company in
different reporting format
Projection of future performance based on assumptions relevant to industry from the
present financial statements
Determining the cost of equity by using CAPM model
A model that describes the relationship between risk and expected return and that is
used in the pricing of risky securities .The general idea behind CAPM is that investors
need to be compensated in two ways: time value of money and risk. The time value of
money is represented by the risk-free (rf) rate in the formula and compensates the
investors for placing money in any investment over a period of time. The other half of
the formula represents risk and calculates the amount of compensation the investor
needs for taking on additional risk. This is calculated by taking a risk measure (beta)
that compares the returns of the asset to the market over a period of time and to the
market premium (Rm-rf).
WACC equation is used to determine the cost of capital
The WACC equation is the cost of each capital component multiplied by its
proportional weight and then summing:
Where Re = cost of equity, Rd = cost of debt, E = market value of the firm's equity, D
= market value of the firm's debt, V = E +D, Tc = corporate tax rate
7. 6 | P a g e
Terminal Value is determine using EBITDA multiple Approach
The EBITDA multiple or the earnings method is based on the premise that the value
of a business is directly related to the quantum of its gross profits. The net profits are
adjusted to reflect the operating recurring profits of the business on a standalone basis
(i.e. after deducting extraordinary or unusual items, or items of a non-recurring
nature). Further, the profits are adjusted for non-cash items (including depreciation
and amortization) and other factors, such as interest and taxation (which vary from
business to business) to derive EBITDA (Earnings Before Interest, Taxation,
Depreciation and Amortizations).
The EBITDA multiple method takes into account the value or consideration paid by
acquirers of similar businesses, and is computed by dividing the total consideration
paid (after adjusting for any debt assumed) by the EBITDA to derive a multiple,
which can be applied to the EBITDA figure of the business being valued i.e. adjusted
maintainable EBITDA are capitalized by an appropriate factor ("capitalization
factor") to arrive at the business value.
EBITDA multiple = Enterprise Value / EBITDA
Where
Enterprise Value (EV) = Market value of Equity + Market value of Debt
EBITDA = Earnings before Interest, Tax, Depreciation and Amortization
All the cash flows are brought into present value and aggregate to obtain the
Enterprise value
This enterprise value is reduced by debt to determine the value of company for
shareholders
Sensitivity analysis is carried out to determine which assumed variable affects the
share price most
Generate recommendation based on intrinsic value determination and future prospects
of the business
8. 7 | P a g e
Scope of the study
This project is vital to me in a significant way. It does have some importance
for the company too. These are as follows –
This project will offer a chance to long term investor to determine
whether to invest in a company or not
It gives an intrinsic picture about the financial situation of the company
and its long term prospects
By providing a genuine advice to the clients company can also earn the
confidence of long term investor
This project will cover the financial aspects of the company under
research
9. 8 | P a g e
Limitations of the study
This study will be basic study about the financial prospects if an
investment is made in ACC Ltd
For carrying out a detailed research data has to be taken over multiple
years to find out the financial prospects
The future plans of the company has been taken from the news available
over the web and hence more deeper analysis is required
Lastly, due to shortage of time it is not possible to cover all the factors
and details (such as non-financial) regarding the subject of study.
10. 9 | P a g e
2 INTRODUCTION TO INDIAN CEMENT SECTOR
The indigenous Indian cement industry traces its history back to 1914, at the time the market
was dominated by imports. Today, the Indian cement industry is very large and second to
China in terms of installed capacity. It has grown at a very fast pace in recent years. Since
1992 India's cement production has increased from 50Mt/yr to more than 300Mt/yr.
Although the Indian cement industry has some multinational cement giants, like Holcim and
Lafarge, which have interests in companies such as ACC, Ambuja Cement and Lafarge Birla
Cement, the Indian cement industry is broadly home-grown. The Indian cement industry is
now globally competitive with lowest energy consumption and CO2 emissions. A part from
fulfilling domestic cement requirements, the industry also exports cement and clinker to
around 30 countries across the globe.
The Industry recorded an exponential growth with the introduction of partial decontrol in
1982 culminating in total decontrol in 1989. Being largest Cement Producing Country in the
World (refer figure 1) , next only to China, the capacity, which was 29 Mn.t in 1981-82, rose
to 340 Mn.t at the end of FY12. While it took 8 decades to reach the 1st 100 Mn.t capacity,
the second 100 Mt was added in 11 years and the third 100 Mt was added in just 3 years. The
industry has around 65 companies having around 200 cement plants. Industry is producing
World class high quality& different varieties of cement to suit a host of applications matching
the world's best in quality. Industry can produce cement conforming to any of the
International standards viz. BS, ASTM, DIN etc. The Industry has been facing a chronic
problem of insufficient availability of the main fuel coal, driving the manufacturers to resort
to use of alternatives at steep cost. Taxes and Government levies on cement are high
compared to countries in Asia pacific region.
Cement Industry, which was branded as the highest polluter of environment, now
meets the pollution standards, and no longer a polluter today. Contributes to environmental
cleanliness by consuming hazardous wastes like Fly Ash (around 30 Mn.t) from Thermal
Power Plants and the entire 8 Mn.t of granulated Slag produced by Steel manufacturing units
and also using alternate fuels and raw materials. The cement industry is using advanced and
environment friendly technologies. The industry has Implemented Waste Heat Recovery
System for co-generation of power in cement plants thereby reducing CO2 emission.
11. 10 | P a g e
Performance of best plant of the Industry w.r.t. Power & Fuel consumption of 68 kwh/ton of
cement & 667 kcal/kg of clinker compares well with best Japanese levels of 68 kwh and 650
kcal.
Figure 1
As a part of Corporate Social Responsibility (CSR), the Cement Industry takes care of the
social needs not only of the employees in the field of Education, Health, Environment ,Water
Supply, Power but also adopts several villages around the factories providing free drinking
water, electricity, medical and educational facilities. Cement Industry employs approx.
Around 5 lakh people in direct and indirect employment in the country and ccontributes
approx. Rs. 32500-35000 crore annually to the national exchequer through various taxes and
levies. Exports Cement/Clinker to around 30 countries across the globe and earns precious
foreign exchange. For marketing the country is divided into five regions namely North, East,
West, South, Central and different companies hold strong position in different regions(refer
figure 2).
12. 11 | P a g e
Figure 2
Demand drivers
Government Spending
Government’s investment in infrastructure is around USD 1 Trillion during the 12th
five year
plan which is 10% of GDP as compared to 7.6% under 11th
five year plan which would be the
major growth driver for it. Lower tax elasticity to mean a slower pace of government
spending, weaker corporate capital expenditure parameters to mean a delayed recovery in
investment spend and slower wage increments amidst high inflation means a decisive
downward shift in demand growth trajectory. Expect a new normal demand CAGR of 6.3%
over FY13-16E, FY14E growth at 5.5%. Though the monsoons have been good, the analysis
shows very little correlation to agriculture GDP. Macro-recovery theme unlikely to play out
and see disappointment on expected election spends and good monsoons.(refer figure 3)
13. 12 | P a g e
Figure 3
Unmet demand of North-East
The North Eastern (NE) region has consistently been in cement deficit for several years. At
present, cement demand in the NE is about 5.2 MT/yr. Cement manufactured locally is
inadequate to meet the local demand for cement, presently the deficit is met through cement
purchased from other parts of India and high transportation costs causes the landed costs of
cement to increase considerably. Demand could considerably rise as the Government has
approved a package of fiscal incentives and other concessions for the North Eastern Region,
namely the North East Industrial and Investment Policy, 2007, effective from 1 April, 2007
The major policy and fiscal initiatives are expected to catalyze infrastructure and industrial
development in the region, spurring the demand for cement. (Refer figure 4)
14. 13 | P a g e
Figure 4
Housing sector and commercial
The Housing segment accounts for a major portion of the total domestic demand for cement
in India. Real estate market is expected to grow at a CAGR of 17.2 per cent over 2011–15 to
USD126 billion.
•Growing urbanization, an increasing number of households and higher employment are
primarily driving the demand for housing
•Initiatives by the government are expected to provide an impetus to construction activity in
rural and semi-urban areas through large infrastructure and housing development projects
respectively
The demand for Commercial Real Estate segments, comprising retail space, office space and
hotels, as well as civic facilities including hospitals, multiplexes and schools, has been rising
due to the growth in economy
•The demand for office space in India is being driven by the increasing number of
multinational companies and the growth of the services sector
•Strong growth in tourism, including both business and leisure travel, has boosted the
construction of hotels in the country
•Estimated demand by real estate segment between 2010 and 2014: Office (240 million sq ft),
Retail (55 million sq ft), Hospitality (78 million room nights)
15. 14 | P a g e
Demand Inhibitors
High Inflation
Consistent high inflation is reducing the saving rating and thus decrease the purchasing
power of people. (Refer figure 5)
Figure 5
Slower macro-recovery
As per the RBI report, for 2014-15, real GDP growth is projected to lie between 5 per cent
and 6 per cent, with a central estimate of 5.5 per cent. This projection remains unchanged
from the April projection with a better than expected industrial growth compensating for the
likely decline in agricultural growth. For 2015-16, real GDP growth is projected to rise to 6.3
per cent. Any movement towards the lower side of the estimate would result in lower cement
demand as cement demand is highly co-related to the GDP. (Refer figure 6)
16. 15 | P a g e
Figure 6
Major Risk to profitability
Pricing power unlikely to recover meaningfully
Despite receding capacity additions (67mt to be add over the next 4 years), according to
estimates the incremental supply would largely meet incremental demand, leading to
sustenance of the current high surplus (55-60mtpa). Moreover, the consolidation in the
industry has been declining with the top-2 groups now controlling a mere 30% of the capacity
compared to peak levels of 42%. With surplus at 3x the demand growth and further
weakening of consolidation with the new entrants entering/expanding, we expect pricing
power to remain vulnerable
Operating inefficiency of vintage plants to be exposed
Vintage plants with old layout and grinding technology lead to 10-30% higher energy
consumption and 25-30% lower cement output. Also, they tend to be logistically inefficient,
as these plants are close to limestone mines and farther from consuming centers. Also
partial/full de-controlled diesel prices, rising railway freights, and shrinking low-cost linkage
coal would expose operating inefficiencies of vintage plants. Players with a larger share of
vintage plants in their total capacity would see their inefficiencies exposed making it difficult
to improve their cost structure
17. 16 | P a g e
Increase in energy cost
There is almost two fold rise in the energy cost over last 10 years which poses a major
problem for the entire sector. (Refer figure 7)
Figure 7
Underutilization of installed capacity
Entire sector is having overcapacity and underutilization thus if demand is not turn out as
expected it will reduce the profitability considerably. (Refer figure 8)
Figure 8
18. 17 | P a g e
New Trend in the Industry
Asset acquisition to be the preferred mode of growth driver
To achieve a normative return with RoCE of 10-12% on new plant, the industry today
requires cement prices of more than Rs320/bag. In a scenario of sub-par demand growth and
sub-optimal new plant economics, we believe that the asset acquisition would provide a better
IRR than asset build-up. Hence, strategic/complementary location plants to be rabbed by
growth hungry un-leveraged players. As most global cement majors already have a presence
in India, and balance sheets of most MNCs are stretched, M&A would be largely driven by
domestic players. In such a scenario, peak M&A valuations are behind us and expect the
premium to shrink.
Logistics cost-efficiency the key to sustaining cost leadership
Contrary to the general perception that the energy cost has gone of control, we notice that it
has actually declined 440bps as % of realization over the last 10 years, despite the fuel cost
rising at a CAGR of 12.4%. It is the logistics/bulk handling cost that has been the
unmanageable part, which has increased 700bps as % of realization during the period. With
partial/fully de-controlled diesel prices and rising railway freights likely to be the new norm,
logistic/bulk handling efficiencies and not energy efficiencies to be the key criteria for cost
leadership.
19. 18 | P a g e
3 INTRODUCTION TO ACC LTD
ACC (ACC Limited) is India's foremost manufacturer of cement and concrete. ACC
stands out as the most unique and successful merger in Indian business history, in
which the distinct identities of the constituent companies were melded into a new
cohesive organization - one that has survived and retained its position of leadership in
industry. In a sense, the formation of ACC represents a quest for the synergy of good
business practices, values and shared objectives. The use of the plural in ACC's
original name, The Associated Cement Companies Limited, itself indicated the
company's origins from a merger. In January 2005, Holcim announced its plans to
enter into a long-term strategic alliance with the Ambuja Group by acquiring a
majority stake in Ambuja Cements India Ltd. (ACIL), which at the time held 13.8 per
cent of the total equity shares in ACC. Holcim simultaneously announced its bid to
make an open offer to ACC shareholders, through Holdcem Cement Pvt Limited and
ACIL, to acquire a majority shareholding in ACC. (Refer Figure 9)
Figure 9
20. 19 | P a g e
Products
Following are the different type of products manufacture by ACC Ltd as shown below
Products
Ordinary Cement
*43 Grade Cement
*53 Grade Cement
Blended Cement
*Portland Pozzolana
Cement (Fly Ash)
*Portland Slag
Cement
Bulk Cement Ready Mix
Concrete
Concrete Value
Added Product
21. 20 | P a g e
4 INVESTMENT ARGUEMENT
Main reason for potential investment choice
Market leader with strong national presence with overall market share of ~10%.
High sensitivity to cement prices and hence increase in price would result in further
improvement in profitability
Focused on reducing power cost by setting up captive power plants and increasing
usage of alternate fuels
Targeting 35 mtpa capacity by 2016
Major investment risks
Very limited scope to increase production through blending as 85% of cement sold is
blended.
Cost base to trend higher as high dependence on domestic coal would necessitate shift
towards imported coal as availability of domestic linkage coal reduces
High freight charges could dampen the profitability as railways is increasing its
freight charges
ACC to incur highest obsolescence cost on upgrading vintage plants
22. 21 | P a g e
5 ASSUMPTIONS
Following are the assumption made for projecting the revenue, expense and profitability.
Various reports for the sector has been referred and meaningful assumption has been drawn
out. Freight and forwarding expenses were higher values are taken as because of increasing
fuel prices and freight hike by railway would substantially increase the cost. Price and
utilization level has been taken from sector report, so that, appropriate future prospects can be
incorporated.( Refer table 1)
Particulars 2014E 2015E 2016E Source
Assumption for Statement of Profit and Loss
Utilization 78% 79% 80% India Rating Report
Sales Volume growth 4% 5% 5% Average Rate
Price Increase 5% 5% 5% India Rating Report
Excise Duty(% sales) 10% 10% 10% Past Trend
Other Income 1.75% 1.75% 1.75% Past Trend
Traded goods 2% 2% 2% Average Rate
Other operating revenue 2% 2% 2% Average Rate
Cost of material consumed (as % of sales) 13% 13% 13% Average Rate
Purchase of stock-in-trade (as % of sales) 2% 2% 2% Average Rate
Employee benefits expense 14% 14% 14% Average Rate
Power and fuel (as % of sales) 18% 18% 18% Average Rate
Freight and Forwarding expense (as % of sales) 19% 20% 20% Emkay Sector Report
Other expenses 19% 19% 19% Past Trend
Tax Rate 30% 30% 30%
Assumption for Balance Sheet Assumption
Capital Work in Progress as % of Sales 10% 10% 10% Average Rate
Trade Receivable as % of Gross Block 3% 3% 3% Average Rate
Days of Inventory 245.42 245.42 245.42 Past Trend
Loans & Advances Growth Rate 10% 10% 10% Average Rate
Finished Goods Inventory as % of Total Inventory 12% 12% 12% Average Rate
Trade payables as of gross block 6% 6% 6% Past Trend
Other current liabilities 15% 15% 15% Past Trend
Short-term provisions 13% 13% 13% Average Rate
Table 1
23. 22 | P a g e
6 PROJECTION
From the assumed data values projection for future has been made. (Refer table 2, 3, 4)
Statement Of Profit & Loss
all figures in crore
Particulars 2014E 2015E 2016E
Revenue from operations (gross) 13610.12 14999.90 16546.85
Less - Excise duty 1361.01 1499.99 1654.69
Revenue from operations (net) 12249.11 13499.91 14892.17
Other Income 238.75 263.13 290.27
Total Revenue 12487.86 13763.05 15182.44
Expenses
Cost of material consumed 1811.92 1996.94 2202.89
Purchase of stock-in-trade 206.31 227.38 250.83
Employee benefits expense 753.02 855.31 971.50
Power and fuel 2484.34 2738.02 3020.39
Freight and Forwarding expense 2585.92 2999.98 3309.37
Depreciation and amortization expense 578.36 633.36 688.36
Other expenses 2585.92 2849.98 3143.90
Total Expenses 11005.80 12300.98 13587.24
Profit before Tax 1482.07 1462.07 1595.19
Current tax 444.62 438.62 478.56
Profit after Tax 1037.45 1023.45 1116.64
Table 2
24. 23 | P a g e
Balance Sheet
all figures in crore
Particulars 2014E 2015E 2016E
Equity and Liabilities
Shareholders’ funds
Share capital 187.95 187.95 187.95
Reserves and surplus 8025.84 8425.43 8918.21
Sub - Total 8213.79 8613.38 9106.16
Minority Interest 2.70 2.70 2.70
Non-current liabilities
Long-term borrowings 0.00 0.00 0.00
Deferred tax liabilities (Net) 512.84 512.84 512.84
Other Long-term liabilities 406.75 406.75 406.75
Long-term provisions 89.09 89.09 89.09
Sub - Total 1008.68 1008.68 1008.68
Current liabilities
Trade payables 694.03 760.03 826.03
Other current liabilities 1735.08 1900.08 2065.08
Short-term provisions 1152.85 1234.55 1327.12
Sub - Total 3581.96 3894.66 4218.23
TOTAL 12807.13 13519.42 14335.77
Assets
Non-current assets
Fixed Assets:
Tangible assets 6063.38 6530.02 6941.66
Intangible assets 21.91 15.58 9.25
Capital work-in-progress 1419.47 1564.41 1725.75
Intangible assets under development 8.65 8.65 8.65
Non-current investments 86.66 86.66 86.66
Long-term loans and advances 737.09 737.09 737.09
Other non-current assets 308.24 308.24 308.24
Sub - Total 8645.40 9250.66 9817.31
Current assets
Current investments 1438.91 838.91 238.91
Inventories 1218.33 1342.74 1481.21
Trade receivables 377.49 413.39 449.29
Cash and bank balances 573.58 912.66 1359.71
Short-term loans and advances 374.43 411.87 453.06
Other current assets 178.93 349.19 536.28
Sub - Total 4161.67 4268.76 4518.46
TOTAL 12807.06 13519.41 14335.76
Table 3
25. 24 | P a g e
Cash Flow Statement
all figures in crore
Particulars 2014E 2015E 2016E
Cash Flow from Operations
PAT 1037.45 1023.45 1116.64
Add: Depreciation 578.36 633.36 688.36
Less: Increase in Deferred Tax Assets 0.00 0.00 0.00
Less: Increase in Inventory -96.03 -124.41 -138.48
Less: Increase in Trade Recieveables 19.69 -35.90 -35.90
Less: Increase in short term loans and
advances 34.04 37.44 41.19
Add: Increase in Current Liabilities 305.66 312.70 323.57
Add: Increase in Minority Interests 0.00 0.00 0.00
Add: Increase in Deferred Tax Liabilities 0.00 0.00 0.00
Other Income -219.13 -238.75 -263.13
Net Cash Flow from Operations 1660.04 1607.89 1732.25
Cash Flow from Investment Activities
Less: Increase in Gross Block -1100.00 -1100.00 -1100.00
Less: Increase in Other provisions 0.00 0.00 0.00
Less: Increase in CWIP -595.93 -144.95 -161.34
Less: Increase in Investments 600.00 600.00 600.00
Less: Increase in Long Term loan and advances 142.87 0.00 0.00
Net Cash Flow from Investment Activities -953.06 -644.95 -661.34
Cash Flow from Financing Activities
Add: Increase in Reserves 104.93 120.00 120.00
Less: Appropriations -743.86 -743.86 -743.86
Add: Increase in Long Term Borrowings 0.00 0.00 0.00
Add: Increase in Share Capital 0.00 0.00 0.00
Others Long term Liabilities 0.00 0.00 0.00
Net Cash Flow from Financing Activities -638.93 -623.86 -623.86
Opening Balance 505.53 573.58 912.66
Cash Utilized 68.05 339.08 447.05
Closing Balance 573.58 912.66 1359.71
Table 4
26. 25 | P a g e
7 ANALYSIS & FINDINGS
Following assumptions has been made while calculating the share intrinsic value.
Explanation about each assumption and its source has been provided. (Refer table 5, 6, 7, 8)
Assumption Values Source
Risk Free Rate 8.30% Yield on Govt. 10 year Bond
Market Rate 15% Report by E&Y
Beta 0.97 Calculated from past prices
Cost of Equity 15% Using CAPM Model
Tax Rate 30%
No of shares Outstanding 18.795
Table 5
Particulars 2014E 2015E 2016E
Net Income 1037.45 1023.45 1116.64
Add: Depreciation 578.359 633.359 688.359
Add: Interest*(1-Tax Rate) 0 0 0
Less: Fixed Capital Investment -1100 -1100 -1100
Less: Working Capital Change 195.28 114.95 108.01
Free Cash Flow to firm 711.087 671.757 813.003
Less: Interest*(1-Tax Rate) 0 0 0
Add: Net Borrowing 0 0 0
Free Cash Flow to Equity 711.087 671.757 813.003
Table 6
Particular Value Source
Terminal Year EBIDTA 2283.55 FY16e EBIDTA
Multiple Used 11 Ambuja Cement Sale 2013
Terminal Value 25119.06
Table 7
27. 26 | P a g e
Present Value of FCFE 1665.67
Discounted Terminal Value 16176.24
Total Free Cash Flow to
Equity 17841.92
Value Per share 949.29
Table 8
Our analysis shows us that the fair value of the ACC Ltd stood at Rs 949/ Share.
Sensitivity Analysis
Variable Changes
Existing
value per
share
Effected
value per
share Change
1% Increase in price of cement 949.29 987 4%
1% Decrease in price of cement 949.29 911 -4%
1% Increase in sales 949.29 987 4%
1% Decrease in sales 949.29 911 -4%
1% Increase in Cost of material consumed 949.29 894 -6%
1% Decrease in Cost of material consumed 949.29 1054 11%
1% Increase in Power and fuel cost 949.29 893 -6%
1% Decrease in Power and fuel cost 949.29 1043 10%
1% Increase in Freight and Forwarding expense 949.29 874 -8%
1% Decrease in Freight and Forwarding expense 949.29 1024 8%
Table 9
On carrying out sensitivity analysis, it has been found that fair value per share is highly
sensitive to cost of material consumed , power and freight charges and any changes in this
factors will affect the assessment has been given by us (Refer table 9).
28. 27 | P a g e
8 RECOMMENDATION
The current market price is overvalued as market is filled with optimism and it is advisable to
caution in investing in cement stock as one the risk materializes it could hurt the share price
badly. Also, we would like to clarify that the view expressed are our own view and could be
more conservative approach. A correction in the price of ACC could be better opportunity to
enter into the stock.
Current Market Price Rs 1377
Fair Value RS 949
Recommendation Reduce
29. 28 | P a g e
9 BIBLOGRAPHY
Books
Equity Valuation: Models from Leading Investment Banks Edited by Jan
Viebig Thorsten Poddig Armin Varmaz
Damodaran on Valuation by A. Damodaran
Websites
http://www.rbi.org.in
http://www.wikipedia.com
http://rbi.org.in/scripts/FAQView.aspx?Id=84
http://www.stern.nyu.edu/~adamodar/
Investopedia.com
Moneycontrol.com
Economic Times
Reports
Motilal Oswal Cement Sector Report 2014
Emkay Cement Sector Report 2013
E&Y Cost of Capital Survey 2014
ACC Annual reports